London Councils welcomes deprivation-based funding shift as ‘far more accurate’

Claire Holland, chair of London Councils, said the inclusion of current deprivation measures, including housing costs, was a positive step, but warned that boroughs across the capital continue to face severe pressures.

She said long-term structural underfunding, rising demand for services and escalating costs had left council finances under enormous strain, particularly in housing and homelessness.

Ms Holland welcomed the move to a multi-year settlement and a more evidence-based allocation methodology, saying it offered greater certainty for councils planning services.

The settlement increases core spending power by more than 23% over three years, with funding intended to support housing services, homelessness provision and private sector housing teams. 

For the first time, the £2.4bn Homelessness, Rough Sleeping and Domestic Abuse Grant has been consolidated into core spending power, giving councils a more transparent and reliable funding line for homelessness services that will now be reflected in headline funding figures.

The Local Government Association (LGA) has previously warned that councils could face a multibillion-pound funding shortfall for temporary accommodation by the end of the decade, driven in part by limits on housing benefit and Department for Work and Pensions reimbursement levels.

Council tax remains a central lever for funding local housing services, including homelessness support and private sector enforcement.

The government has confirmed that councils can increase council tax by up to 3% a year, with an additional 2% for adult social care, while six authorities with historically low council tax levels will be allowed to go beyond the usual caps.

The settlement also includes changes aimed at incentivising housing growth. Councils will be able to retain all additional council tax raised from new homes in some circumstances, a move intended to support local growth and homeownership.

The defunct New Homes Bonus will be folded into the Revenue Support Grant, removing it as a standalone incentive for housing delivery.

A reset of business rates retention from 2026-27 will continue to reward growth outside core spending power, but critics warn that inner London boroughs with high build costs and lower business density could lose out compared with other areas.

While the first multi-year local government settlement in more than a decade provides greater certainty for councils, London Councils has warned that pressures on homelessness services, temporary accommodation budgets and housing revenue accounts remain acute. 

Boroughs have previously warned they could face a £3bn funding gap for temporary accommodation by 2029-30, linked to rising costs and historic shortfalls in housing benefit reimbursement.

London Councils said that while the reforms marked a more transparent and accurate approach to funding, significant challenges remain in tackling homelessness, affordability pressures and the long-term sustainability of council housing finances.